Why Real Estate Operators Matter More Than Ever in Multifamily Investing

Brian Tobler (00:00)
I think so. I think there’s, I mean, I went to one of the best ever conference. A lot of guys go to that have been to that in the past and Salt Lake and I mean, attendance was down notably, you know, and you start to see the syndicator space. There’s been some disruption. Whether you’re talking syndicator fund, I mean, to me, it’s kind of the same thing. And we’re talking about the same deal for the most part. It’s just the structure.

Dylan Silver (01:57)
Hey folks, welcome back to the show. Today’s guest, Brian Tobler is a commercial real estate lender, broker, and investor focused on capital strategy, deal structuring, and execution across multifamily and ground up development projects. He has financed hundreds of millions of dollars in

commercial and multifamily construction loans while helping investors connect capital with strong opportunities. Brian, thanks for taking the time today.

Brian Tobler (02:23)
Yeah, glad to be here.

Dylan Silver (02:25)
Now, you’ve operated as a lender, as a broker, as an investor. How does this experience shape the way that you evaluate opportunities today?

Brian Tobler (02:37)
I mean, now I’ll give you a different perspective, right? So ⁓ my long time ⁓ background is on the lending side. So obviously that’s the fundamentals, right? If anything, you gotta be able to underwrite ⁓ no matter what you’re looking at. So a lot of construction, a lot of CRE. ⁓ So from the underwriting perspective, that helps you gauge the risk, ⁓ kind of see through different things in the deal.

make sure it’s going to pencil. And then ⁓ on the broker side, mean, it’s kind of flipping the switch, right? It’s kind of finding the deals, sourcing things, being active in the market. That does present different opportunities. You’re not in the capital stack, so ⁓ you’ve got to convince people a little bit harder to work with you when they don’t necessarily need you, right? They’re paying you a fee, whereas the lender, need the money. ⁓

And then as an investor, same thing. You just take those same fundamentals and you, you know, with reps under your belt, you can see things that you, that you like, that you don’t like. You can see operators that you like, that you don’t like, and that gives you opportunity to, you know, invest alongside some of these guys. So.

Dylan Silver (03:56)
got a granular question for you as someone who’s a lender in this space. ⁓ For folks who are multifamily syndicators, specifically in the new construction space, right now, how can they conservatively underwrite these deals? Because it seems like whatever people were doing over the last five years was maybe too aggressive underwriting, right?

Brian Tobler (04:26)
It just depends, right? Not everybody’s deals in trouble. Like for example, I mean, I’m in a deal that we started in 2021, took a while to get entitlements. Some of that’s just the nature of the business, right? You can’t always guess how long the city is going to take to get those permits, but, we’ll exit out of that deal this year. So, and we’re, you know, we’re going to 2X our money and now our money’s been in there a little longer because it took some time to get those permits, but

⁓ You know, it was underwritten properly. ⁓ lot of it’s location, right? So you don’t want to really stretch for location. If you’re doing a new ground up deal,

know that’s like the old adage, right? Location, location, location. But it’s very true. ⁓ You know, if you’re in a solid A, high B location, you you start getting fringy, you go to B minus C plus locations, you know, it’s going to be challenging to offload those units. ⁓

I’ve got a deal right now where these guys built 12 townhomes. They are paying me off next month. You know, they’ve got eight of them, six of them sold, the other three under contract, and then that gets them out of the loan. And then they’ll have a couple more after that. But then I’ve got another deal, a 10 unit ground up. First five units sold immediately to one investor.

the back five are sitting, right? So they’re doing DSCR loans to refinance those things, pull some cash out, put some renters in there for a year or two. And so I think they’re being smart in their exit strategies of giving themselves opportunities of, how else can we get out of these deals if we can’t pay the lender back ⁓ immediately in the sense that these are spec, right? Now I just closed another 24 unit ground up deal in Englewood, just north of a hospital system.

great location because of its proximity to the hospital. ⁓ Again, pointing out that location piece, right? And this is a bill to rent, it’s not for sale. So, you know, they’ve run their numbers. ⁓ But again, it’s all about exit strategies as well. You gotta protect, you know, that option as far as, if these aren’t renting, we’re not getting the numbers, we’re not cash flowing, you you got a problem. It’s either gonna be a cash in refi, ⁓ you know, with another lender or…

it’s going to be, all right, maybe we need to sell some of these and they don’t really want to do that very badly because it’s an opportunity zone. you’ve to, you’re taking capital gains, you’re parking them into the opportunity zone to then hopefully in 10 years be tax free, right? But ⁓ so to answer your question, I think it is location, but it’s also the fundamentals of, you know, you got to run your comps in the multifamily space. You got to see what’s taking in the neighborhood.

And literally it’s street by street. don’t know about other cities, but Denver is street by street. On one side of the street, you could be Cherry Hills, you know, here in Colorado. On the other, you know, you’re Englewood. And that’s a big difference. Cherry Hills, you know, multi-multi-million dollar homes, very wealthy, affluent community. know, Englewood’s okay, but it’s not Cherry Hills. So.

Dylan Silver (08:32)
Yeah, I mean that street by street nature, know, typically when people are looking at comparables, if it’s, on the same…

block or just down the block, it’s not going to make too much of a difference. But if you go just one street over, you mentioned you’re in a totally different neighborhood, could be different year builds and so forth. And when you’re looking at the multifamily space specifically where there’s potentially fewer comps, then that of course throws another layer of complexity in there. I wanna ask you about value add though, because from what I can see, and I’m in Texas, right? So from what I can see,

these Class A ⁓ opportunities, these ground up developments seem to be what everyone is building. And there does seem to be maybe a surplus of Class A housing, but overall there may still be a shortage of housing overall, certainly affordable housing. ⁓ Is there going to be more ground up construction in the affordable housing segment or is it just too difficult for those deals to underwrite?

Brian Tobler (09:40)
Look, I we just broke her. We’re brokering a piece of land right now. As I said, I wear many hats, right? So a partner and I, have ⁓ land. It sits just on the Aurora border of Denver, right on the border of the two cities. But technically it’s Aurora. And it’s going affordable. And

it’s been a real struggle, you know, the timing of these deals. And then, you know, you have a certain percentage of AMI that you got to hit.

They’re complicated, right? mean, if you can figure out an affordable deal, I mean, I think they can still work. And I got another client that’s doing an affordable deal right next to the 2012 unit that I told you about. Now, I think it is trickier to get them to pencil because you got to buy the land, right? But then I think you got to have the buy-in, right? You got to have the tax credits and you got to have the layers and the capital stack to make it make sense. And the process is very tedious and time consuming and strict.

So ⁓ I think if somebody’s getting into this space, mean, just understand it, right? I mean, it’s not my bread and butter. It’s not my niche, if you will. But ⁓ ground up is really my deal. And I also invest in some value add deals that are outside of Colorado. But ⁓ good question.

Dylan Silver (11:35)
You know, in the ground up space, you mentioned how important it is to buy the land right. You know, is this a potential error that you’ve seen people make and maybe less so now than over the last couple of years where they’re maybe overpaying for the land and you just can’t work from that position once you’ve dug yourself that hole?

Brian Tobler (11:57)
Yeah, I mean, you make your money on the purchase of the property. So if you, if you buy it wrong, I mean, there’s, there’s not, there’s not a whole lot you can do. I mean, to some extent, depending on the quality of the project and the finishes, or maybe you’re, you’re one of those where if you’re, if you’re your own GC, right. And you can save that fee or there’s some other ways to make it up. But if it’s just a, Hey, I’m a developer. I’m going to go buy this piece of property. I’m going to hire a GC to build it for me.

You know, if you if you didn’t buy it right, I mean, they can tighten the budget as much as they want, but stuff costs what it costs. Right. I mean, here you’re talking for a for a new development. You’re probably not two fifty to two seventy a square foot, ⁓ you know, on the on the budget. And so that doesn’t vary that much. And if it does, I mean, there’s only so much you can go on the upside of the exit. Right. The people are willing to pay price per square foot. So.

Suddenly if you’re getting in debt, $400 or $500 a square foot to build, which would be stupid expensive. But if you did, I mean, there is no profit there. And I don’t know why anybody would lend you money because if there’s no margin, nobody’s making money, right? So.

Dylan Silver (13:10)
How common do you see that mistake being made where people are overpaying for the land?

Brian Tobler (13:17)
You know, I think most guys that I that I’ve worked with here, they’re they’re pretty cautious. You know, they’ve really slowed down. They’ve it’s more of the guys that kind of try to do too much at once that end up getting over their skis and suddenly they’re, you know, they’re trying to find their way out of. mean, there’s an example here in Denver. I won’t share names or anything, but there’s a guy about my age that

has been developing for, I don’t know, 10, 15 years. ⁓ you know, he’s one of those stories that he got over his skis and committed suicide. ⁓ You know, it’s an ego thing. There’s way better alternatives than that, but I don’t know. I don’t know where his head space was then, you know, and left a wife and kids. And so the consequences are real, right? We’ve heard these stories before, but… ⁓

It is one of those things and that’s why I think guys that are going in very conservatively make it make sure it pencils. I’m looking at a new deal now. It’s a 12 unit ground up townhome project ⁓ in northwest Denver and these it’s these guys’s first deal right so they come from good corporate developer backgrounds but again it’s a first deal so it’s everybody’s going to look at it a little harder. I think they’re getting the seller to carry the carry the deal on the land.

So I think their basis in it will probably be okay, especially if the seller’s involved. You can kind of work with those numbers and if somebody’s owned it for a long time, maybe you can work out some sweet economics. ⁓ But yeah, I think guys are just being very cautious. I mean, I’m not seeing a lot of people land like, yeah, gung ho, here we go. I’m gonna pay whatever I can get in Denver to get land. It’s not the case, so.

Dylan Silver (15:49)
Now, being active in Denver specifically has got to be interesting because you’re seeing some of these other markets across the country and Denver is in the mix. as someone who is out there, if you had to put you on the spot a little bit here, Brian, if you had to rank cities, where would you say Denver ranks among the nation’s top metros specifically for ground up new multifamily construction?

Brian Tobler (16:17)
⁓ I mean, that’s a loaded question. If you were asking me this question six, seven years ago, very near the top today, ⁓ Denver’s slowed dramatically. I mean, we’re starting to see a net outflow as is kind of what we’ve been hearing on the population. And the number one reason for that is affordability, right? So Denver is the…

most expensive landlocked city to live in, think, in the United States. Don’t quote me on that, but it’s, if it’s not, it’s very close. So, you know, people have the options. I’m going to live on the West coast or the East coast or, or Denver, right? And it’s like, well, I mean, let me find somewhere else, right? Let me go to Salt Lake or Phoenix or somewhere else in the Mount West. If you’re really into the, if you’re really into the mountains, right? So, and I think Idaho’s picked up steam. Montana’s really picking up steam.

⁓ We see just kind of an outflow. So unfortunately, ⁓ you know, Denver, regardless of what your political standing is, Denver is a blue state, it’s not a state, but Colorado is a blue state. Denver is very blue. So some of these policies that are coming down the pike, you know, with housing and landlord laws are not favorable. So we’re seeing some challenge, some headwinds in that regard. So.

Dylan Silver (17:40)
Now, when you’re

managing a project of this magnitude. One of the things that is specifically challenging to this space is you could start a project, but the timeline for development can be quite long. And then the timeline that you’re in the deal can be three to five years. And I’ve now heard that people are having even longer time horizons for their hold time for these. So so much changes. When you’re going into a deal, how much of that are you

know, cautiously concerned about like, we could see some big changes over the next, you know, 18 or so months while we’re building this. How much of that goes through your mind?

Brian Tobler (18:21)
I mean a lot because you know what you see today when you’re doing a deal isn’t necessarily what it’s going to be like, you know, in two or three years when they’re exiting that deal. And in some cases, four or five or six, you know, depending on the size of the project and how long it takes. So from an investor standpoint, it’s all about when you get in the deal, right? If you get into the deal real early and you have to ride with the whole approval process, permitting process, I mean, you know,

In Denver, that could take you two years. could take you a year and a half. It take you a year. It just depends on when you submit and how quick they push it. But you’re probably looking at least a year, if not more. And then, OK, now we’re permitted. We’re ready to go. Now we have to make sure our budget’s still OK, that prices didn’t change, that the schedule is going to tick with everything with the contractor.

And then you hit the go button, right? So you’re most guys are building these probably in 12 to 15, maybe 18 months, depending on the size, but they’ll knock that piece out pretty quick. So at least that risk is behind them of getting the property bill. And then, you know, if it’s for sale or if it’s for lease, yeah, you got to either sell them or lease them up and stabilize the property. So, so yeah, you’re, mean, anybody’s best guess, right? So that’s, think why

when a banker looks at these or a lender looks at these, they’re looking at the sponsors. know, guys will sometimes still come in and say, hey, can we do this non-recourse? And I totally agree, get the question of that, you know, hey, I don’t want to have to put my name on the note here, but the typical banker response is, hey, if you don’t believe in it, I’m not going to believe in it. So if you’re willing to sign it, I’ll sign on it. I’ll give you the money, right? So. ⁓

Anyway, that’s just a long winded way, it’s the timing is challenging because I mean, we’re Colorado is overbuilt just like many places, know, Austin was overbuilt. There’s a lot of Sunbelt markets that were overbuilt. ⁓ Denver, Colorado Springs were overbuilt. There’s going to be a supply cliff coming nowhere. That’s going to drop off dramatically. Permits are down. And so it’ll be interesting to see how this plays out going forward for the R market anyway.

Dylan Silver (20:42)
I mean, I can certainly echo that. I’m in the, just outside of the greater Austin Metro ⁓ in San Marcos, Texas. And you see it so much of that. for the general public who’s looking at this and you’re seeing so many brand new, class A multifamily developments happening.

they’re thinking, okay, this must be hugely profitable and everyone getting into this. But in actuality, after speaking with so many different syndicators, what we may be seeing is the end of these deals, after they’ve been ⁓ funded and then built and now you’re seeing some of them being vacant, we may start to see some distress in the operator side, right?

Brian Tobler (21:29)
I think so. I think there’s, I mean, I went to one of the best ever conference. A lot of guys go to that have been to that in the past and Salt Lake and I mean, attendance was down notably, you know, and you start to see the syndicator space. There’s been some disruption. Whether you’re talking syndicator fund, I mean, to me, it’s kind of the same thing. And we’re talking about the same deal for the most part. It’s just the structure.

But, you know, a lot of LPs over the years, last

three, four years, there’s been several deals that capital calls, deals not going well, there’s problems, investors are losing money. So that puts a strain and that kind of, those whispers go through different communities. And then when guys go to raise capital for their deal, people are a little bit like hesitant. I thought the multifamily market’s not doing too well. ⁓ I had a financial advisor client of mine,

invested in deals in your state in Texas. And he said, he said, man, I real estate was supposed to be good stuff. Like my deals are not going well. He’s like, so much for diversifying. I should have just kept my money in the market. anyway, ⁓ operator makes makes a difference is kind of my point. I mean, you got to pick guys that are going to be able to solve problems that have experience, ⁓ you know, and

Sometimes you just can’t underwrite all the risk out of a deal anyway, period. mean, it’s some stuff’s just unforeseen. The COVID era, the geopolitical environment, you just, can’t underwrite that, right? You just gotta figure out how do we navigate this now. And so back to my point of when lenders are looking at deals for these guys, ⁓ you wanna see a GP group that’s got ⁓ some meat on the bone, right? Whether that’s net worth or liquidity or.

some way to solve problems ⁓ if the deal gets tight.

Dylan Silver (23:31)
We are coming up on time here, Brian. Any new projects that you’re working on or anything you’d like to mention directly to our audience.

Brian Tobler (23:40)
⁓ you know, I was, I was looking at deals, obviously, ⁓ you know, it’s, been a little bit slower on the investing side. ⁓ you know, from, from the brokerage side, I think most brokers would agree that, you know, there’s, there’s activity, but no deal is easy today. ⁓ and then just on the lending side, you know, I’m, open for business. And if somebody’s looking to come into this market, I have.

you know, the lending, the brokerage experience, the investing experience, and obviously kind of get more and more into the debt and equity placement as another layer for folks. So capital advisory.

Dylan Silver (24:20)
And thank you so much for joining us today. Thanks for your time.

Brian Tobler (24:23)
Yeah, appreciate the invite.